Storm clouds may be building over the online advertising market. Both Business Week and the New York Times have published major articles on click fraud. Though neither produces hard evidence that it’s an unmanageable problem, both raise troubling questions about its prevalence and growth. Perhaps of more immediate concern, the Times article reports that researcher eMarketer is about to cut its estimates for online ad spending this year by approximately 5 percent. Combined with Yahoo’s recent warning on slower-than-expected growth in ad sales, it’s an indication that expectations may have crept ahead of reality – and a reminder that the online ad market, like every other ad market, is tightly tied to broader economic conditions. Given that online advertising is the sole engine powering the entire Web 2.0 microeconomy, any significant sputter would have wide implications.
Click fraud has been keeping online venues open for years. The classic Harvard MBA online business model has always circulated an air of potential fraud. Millions of dollars are poured into online ventures, then somehow–no profits for 5 maybe 7 years (projected of course, as many never make it to the 5th year!). I don’t understand how advertisers can insist on investing their future with companies that have the look and feel of a house of cards.
What about all the TV or print ads that go unwatched? By skipping a TV ad on my TiVo, am defrauding the advertiser? Call it “skip-fraud.”
Click fraud is a built-in cost of advertising online. Advertisers already have tools that tell them how effective online ad campaigns are &mdash the big picture. Ad clicks are just one metric and are being overemphasized.
“U.S. Internet advertising revenue rose 37 percent in the first six months of the year, hitting a record of nearly $8 billion, according to a study released on Monday.” according to this story by Reuters, http://today.reuters.co.uk/news/articlenews.aspx?type=internetNews&storyID=2006-09-25T151619Z_01_N25268733_RTRIDST_0_OUKIN-UK-MEDIA-ADVERTISING.XML
I recently read a report called “The Decade in Online Advertising”. The report makes three points: 1) Online advertising is quickly carving huge chunks out of traditional advertising. We can all agree on this. 2) In terms of spend, PPC is about 40% (p.12) of online advertising now. It is growing very fast (cf. Google’s 422% revenue growth) and it grows by taking ad spend away from other media (magazines/radio/TV). Advertisers are reallocating their budget away from traditional advertising and moving it to PPC. 3) The paper argues that rich media (i.e., Flash) is appeals to advertisers (p. 10) and the “fixation on quantification is stifling the creative potential of advertising” (p. 13)